(CNSNews.com) – President Barack Obama said Friday he was “putting colleges on notice,” about rising tuition. However, the proposal would only touch a small part of federal aid to colleges.

Obama touted the idea that colleges and universities that kept tuition low would get more federal dollars, while institutions that raised tuition would get less. This proposal covers Perkins loans for students and work study programs.

Those campus-based aid programs constitute $3 billion out the total $142 billion in federal grants and loans the federal government distributed in 2011. Obama is proposing increasing this aid to $10 billion, but distributed differently.

Still, limiting campus-based aid programs ignores the largest government expenditures such as federal Stafford loans and Pell Grants, said Neal McCluskey, associate director of Center for Educational Freedom at the libertarian CATO Institute.

“Those are tiny compared to Stafford loans, which are the primary student loan program, tiny compared to Pell grants, tiny compared to tax deductions and benefits people get,” McCluskey told CNSNews.com. “Those programs just in total are very small. Then we don’t know how big a tuition increase would have to be to get some reduction or what size that reduction would be.”

He added, “The fact that he’s based it in really small programs means there is no intention to do something really powerful to a whole lot of schools.”

Speaking to students at the University of Michigan in Ann Arbor, Mich., Obama told the student audience that the nation's economic future depended on making sure every American can afford a world-class education.

“So from now on, I’m telling Congress we should steer federal campus-based aid to those colleges that keep tuition affordable, provide good value, serve their students well,” Obama said.

“We are putting colleges on notice – you can’t keep – you can't assume that you’ll just jack up tuition every single year. If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down. We should push colleges to do better. We should hold them accountable if they don’t,” he added.

Obama’s proposal addresses college costs “only in the most superficial level,” McCluskey said.

“What he’s saying is the federal government will reduce the amount of aid that schools will give out if those schools are deemed to be raising their prices too quickly,” McCluskey said. “It didn’t give any indication of what constitutes too high or too quickly.”

Given that heavy subsidies have been the key cost drive of tuition, McCluskey believed this proposal is the “least prudent way to deal with college inflation.”

“The root problem isn’t that colleges charge too much,” he said. “The root problem is the federal government gives too much money to too many people to pursue an education that perhaps they’re not ready for, that they’re not motivated to succeed in. And that money allows colleges to raise their prices at will. To deal with the real problem, you have got to cut student aid. There is simply no other way around it.”

During the speech, Obama also stressed the importance of a diploma.

“In the coming decade, 60 percent of new jobs will require more than a high school diploma,” Obama said. “Higher education is not a luxury. It's an economic imperative that every family in America should be able to afford.”

But there has been too much focus on graduation rates, McCluskey said.

“When you focus on graduation rates, well just give more people a diploma regardless of what they had learned,” McCluskey said. “You hear it a lot: Getting a Bachelor’s degree is the key to increased earnings. Earnings for people with Bachelor’s degrees have decreased in the last few years.

“About one-third of people with Bachelor’s degrees are in jobs that don’t require one. All the evidence is of massive over-credentialing. And if all you’re going to tell colleges is graduate, they’ll just give out less meaningful diplomas than we’ve been giving out so far.”

Obama’s proposal seems likely to get some bipartisan review, as Rep. John Kline (R-Minn.), chairman of the House Education and Workforce Committee, said it deserves consideration.

“Competition and transparency are basic principles Republicans have long supported to help lower costs in higher education, and institutions have a responsibility to do everything they can to provide a good education at an affordable price,” Kline said in a written statement.

“We need responsible solutions that will serve the students of today and tomorrow without increasing the federal role in our nation’s education system. The president has proposed a number of interesting ideas that deserve a careful review,” Kline added.